|TERRAFORM POWER, INC. filed this Form 10-K on 03/15/2019|
Management, including the Chief Executive Officer and Chief Financial Officer, has conducted an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, based on the criteria in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s assessment using these criteria, we concluded that, as of December 31, 2018, there were material weaknesses in our internal control over financial reporting as further described below.
As permitted by SEC guidance, management has excluded from its assessment of internal control over financial reporting, the internal controls of Saeta, which was acquired on June 12, 2018. As of December 31, 2018 and for the year ended December 31, 2018, total assets and total revenues subject to Saeta’s internal control over financial reporting represented approximately 35.7% and 28.9% of the Company’s consolidated total assets and total revenues, respectively.
A material weakness is a deficiency or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement in our annual or interim financial statements will not be prevented or detected on a timely basis. In 2017, in making its assessment, management concluded that there were material weaknesses in our internal control over financial reporting.
2018 Remediation Activities
In response to the material weaknesses identified in our Annual Report on Form 10-K for the year ended December 31, 2017, the Company performed the following remediation activities in 2018:
We revised our organization structure and hired dedicated permanent accounting, finance and IT personnel, including senior management, with assigned responsibility and accountability for financial reporting processes and internal controls. Further, we provided U.S. GAAP and internal controls training for all employees and remaining contractors involved with our internal control over financial reporting processes.
We performed a fraud risk assessment process focused on identifying and analyzing risks of financial misstatement due to error and/or fraud, including management override of controls.
We hired a senior internal audit resource and strengthened the internal audit function through increased interaction and engagement with the internal audit team of our Sponsor, Brookfield. A company-wide risk assessment has been completed and a risk-based internal audit plan has been developed that is responsive to the risks that were identified in the company-wide risk assessment and will assist in monitoring the Company’s adherence to its policies and procedures.
We conducted a detailed review and re-documentation of key policies, business processes and controls and have made significant control design changes to ensure that control objectives are met. We have updated many of our financial reporting policies and procedures and enhanced management's self-assessment and testing for internal controls.
We enhanced the information and communication processes to ensure the organization communicates information internally in a timely manner, including information regarding objectives, responsibilities and the functioning of internal controls over financial reporting. These enhancements include more rigorous analysis of the Company’s financial results versus its budgets and operating plans, more frequent discussion of significant business transactions and the impact of these transactions on the Company’s financial reporting, and improving communication to employees regarding their responsibilities for ensuring that effective internal controls are maintained.
We established information technology and other critical systems infrastructure, and have enhanced the information technology control framework to support all business applications and infrastructure. We obtained and evaluated Service Organization Control reports from outside service providers for key applications utilized in financial reporting to ensure controls at the service organizations, in combination with the Company’s own controls, effectively achieve the Company’s objectives and assertions related to financial reporting.
We implemented an accounting system with appropriate segregation of duties and approval workflows, which also enables a more effective procurement and accounts payable process with system controls for the review, approval and appropriate recording of expenditures on a timely basis.
We standardized aspects of the account reconciliation process to ensure completeness, existence and accuracy of account balances on a timely basis.